Is It Worth Considering Yangtze Optical Fibre And Cable Joint Stock Limited Company (HKG:6869) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Yangtze Optical Fibre And Cable Joint Stock Limited Company (HKG:6869) is about to go ex-dividend in just three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Yangtze Optical Fibre And Cable Limited's shares before the 3rd of July in order to be eligible for the dividend, which will be paid on the 15th of August.

The company's upcoming dividend is CN¥0.268 a share, following on from the last 12 months, when the company distributed a total of CN¥0.27 per share to shareholders. Looking at the last 12 months of distributions, Yangtze Optical Fibre And Cable Limited has a trailing yield of approximately 1.4% on its current stock price of HK$21.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Yangtze Optical Fibre And Cable Limited can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Yangtze Optical Fibre And Cable Limited paying out a modest 27% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Yangtze Optical Fibre And Cable Limited's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Yangtze Optical Fibre And Cable Limited

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Yangtze Optical Fibre And Cable Limited's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Yangtze Optical Fibre And Cable Limited has delivered 4.9% dividend growth per year on average over the past 10 years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Yangtze Optical Fibre And Cable Limited? Earnings per share are down very slightly in recent times, and Yangtze Optical Fibre And Cable Limited paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Yangtze Optical Fibre And Cable Limited's dividend merits.

However if you're still interested in Yangtze Optical Fibre And Cable Limited as a potential investment, you should definitely consider some of the risks involved with Yangtze Optical Fibre And Cable Limited. Case in point: We've spotted 1 warning sign for Yangtze Optical Fibre And Cable Limited you should be aware of.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.